State Street Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Progress: 2025 marked the second consecutive year of positive operating leverage and pretax margin expansion. Achieved $500 million in productivity savings in 2025, with nearly $2 billion in cumulative savings over five years. Launched the digital asset platform, advanced wealth services via a partnership, and expanded investment management products with 134 new products in 2025.
• Client Focus: Strong client satisfaction, progress in alpha client onboarding, including with large development partners. Innovation in products and platforms, such as next-generation tools and digital solutions for clients.
• Technology and Transformation: AI-enabled capabilities and AgenTx driving operational efficiency and smarter decisions. Continued investment in technology platform transformation to enhance efficiency and client experience.

Segment Performance

• Investment Services: AUCA surpassed $50 trillion in 2025. Servicing fees had double-digit growth in private markets in 2025, with related servicing fees growing double-digit. The digital asset platform was launched. Record AUCA of $53.8 trillion in Q4 2025, up 16% year over year.
• Investment Management: Ended 2025 with record quarterly and full-year management fee revenue. Assets under management reached $5.7 trillion, up 20% from the prior year. Launched 37 new products in the fourth quarter of 2025. Quarterly management fees increased 15% year over year to a new record of $662 million.
• State Street Markets: FX trading revenue increased 13% year over year in Q4 2025, supported by client engagement. Securities finance revenues grew 8% year over year, driven by higher client lending balances.
• Software and Processing Fees: Declined 15% year over year in Q4 2025 due to lower on-premises renewals, but software-enabled revenues increased 7%, with front office revenue backlog up ~16% year over year.
• Net Interest Income: Q4 net interest income was $802 million, up 7% year over year, with net interest margin expanding to 1.1%.

Guidance

• 2026 Outlook: Assumes flat global equity markets, two Fed cuts, one Bank of England cut, and no ECB cuts. Fee revenue expected to grow 4%-6% due to continued momentum in servicing and management fees. NII expected to grow low single digits with improved net interest margin. Expenses projected to increase 3%-4%, with productivity savings offsetting recurring costs. Target positive operating leverage over 100 basis points, leading to a pretax margin of approximately 30%. Effective tax rate expected to be ~22%, and total payout ratio around 80%.

Risks

• Market and Regulatory Risks: Shifts in investor demand, regulatory changes, and market volatility could impact financial results. Balance sheet optimization and net interest income growth are subject to market conditions and execution.

Question and Answer

Q: Glenn Schorr asks about operating leverage and AI's impact on it.

A: John Woods and Ron O'Hanley discuss revenue outlook, productivity savings, and AI transformation, noting that there's management discretion in investing, with productivity savings offsetting some costs and AI transformation accelerating in 2026 and beyond.

Q: Betsy Graseck asks about digital assets and their financial impact.

A: Ron O'Hanley talks about digital asset opportunities, such as digitizing cash and money market funds, and that the financial impact is medium-term, not immediately replacing current activity but positioning for future growth.

Q: Ken Usdin asks about NII over-earning in Q4 and what might not continue.

A: John Woods explains that seasonal factors like deposit mix moderated, but net interest margin is expected to rise in 2026 with ongoing balance sheet optimization.

Q: Jim Mitchell asks about balance sheet optimization and buyback.

A: John Woods discusses balance sheet optimization across components, including running off higher-cost funding, rotating capital for lending, and expects buyback and payout to align with capital priorities and growth opportunities.

Q: Alex Blostein asks about balance sheet and buyback.

A: John Woods clarifies 2025 payout was around 80%, with buyback aligned with capital priorities, including growing lending businesses and strategic investments, and expects similar payout in 2026.

Q: Brennan Hawken asks about software and processing fees transition.

A: John Woods and Ron O'Hanley explain the transition from on-prem to SaaS, with on-prem renewals down but offset by SaaS growth, and the transition taking a year or two to see full benefits.

Q: Gerard Cassidy asks about 2025 forecast vs actual.

A: Ron O'Hanley and John Woods attribute the beat to unanticipated market tailwinds, better execution, and growth in markets, with organic growth built into 2026 guidance.

Q: David Smith asks about returns and growth potential.

A: Ron O'Hanley and John Woods discuss revenue growth potential from core businesses, NII optimization, and AI-driven efficiency, expecting continued improvement in returns and growth over the medium term.

Q: Mike Mayo asks about State Street's strategy and investor confidence.

A: Ron O'Hanley and John Woods outline reasons to invest in State Street, including attractive fundamentals, distinctive capabilities, effective execution, strong team, and potential for multiple expansion, emphasizing organic growth and strategic investments as key drivers.